Big surplus brings end to insurer's tax exemption

That is one very profitable nonprofit.

California officials ended the state tax exemption of a major health insurer in the Golden State after an audit reportedly found that it had a huge cash surplus and failed to offer customers less pricey health plans.

Blue Shield of California had accumulated a surplus of more than $4 billion by 2012, according to a Los Angeles Times examination of the 2014 audit, almost double where it stood in 2006.

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The audit, performed by the California Franchise Tax Board, called the surpluses "extraordinarily high" and said they "far exceeded" the amount of reserves required by law or industry standards, according to the Times. The newspaper said it had reviewed documents related to the audit after the board refused to release information about its findings.

Blue Shield of California
Source: Blue Shield of California

The audit also found that job descriptions for top executives at the insurer included the responsibility to "maximize profitability," and that Blue Shield "does not provide any free or significant below-cost health-care plans to the general public," the Times reported.

"Blue Shield is not operating exclusively for the promotion of civic betterment or social welfare," tax board officials reportedly wrote to the insurer, the third largest in the state, after the audit in June 2014.

Two months later, the board revoked Blue Shield's state tax exemption, which had been in effect since the insurer was founded in 1939. The revocation came after Blue Shield claimed it needed the big surplus because of a volatile health insurance market, a claim that officials didn't give much credit.

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Blue Shield said it has since forked over $62 million for the tax years 2013 and 2014 as it appeals the tax board's decision.

"Our public statements about what would happen if Blue Shield were ever dissolved are completely true and we stand by them 100 percent," Blue Shield spokesman Steve Shivinsky told the paper.

The Times report comes as Blue Shield is asking state regulators to approve its proposed $1.2 billion acquisition of Care1st, a for-profit health firm that focuses on Medicare and Medicaid coverage.

A director at Consumers Union of San Francisco told the Times that Blue Shield should instead use that money to provide "reduced price insurance" and serve "the health needs of vulnerable populations."

Read the Times article here.